New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on January 4, 2002, representing the position of the New York State Insurance Department.

RE: Payment of Premium to Insurance Agent or Broker

Questions Presented:

1) Is an insurance agent or broker obliged to accept a premium payment from an insured, even if the insured agreed, as a condition of policy issuance, to pay its premium directly to the insurer?

2) May an insurance agent or broker charge a fee to an insured for forwarding a premium payment on to the insurer?

3) May an insurance agent or broker that accepts a premium payment from an insured, in effect, "forward" the premium payment to the insurer by credit card, where such credit card is used solely for the purpose of paying insureds’ premiums?

4) May the insurance agent or broker make a withdrawal from its premium account to pay the credit card bill?

5) Where the use of the credit card to forward insurance premiums to insurers results in the insurance agent or broker qualifying for certain benefits provided by the credit card issuer, such as free air mileage, may the insurance agent or broker take advantage of such benefits?

Conclusions:

1) Pursuant to N.Y. Ins. Law § 2121(a) (McKinney 2000), a premium payment made to an insurance broker is deemed to be payment made to the insurer. An insurance broker should accept an insured’s premium payment where it is in the insured’s best interests to do so. An insurance agent is the representative of the insurer and must, therefore, accept premium payment from an insured. A producer of an assigned risk automobile insurance policy must always take a premium payment proffered to it in an acceptable form from an insured pursuant to § 14(E)(2)(b) of the Rules of New York Automobile Insurance Plan (2001).

2) An insurance broker may charge a fee for the services involved in accepting premium payments where a written memorandum, signed by the insured and specifying the amount and purpose of such compensation, is obtained N.Y. Ins. Law § 2119(c) (McKinney 2000). An insurance agent may not do so, except when acting as a producer of (and only with respect to) an assigned risk automobile insurance policy, and in such case must do so in accordance with N.Y. Ins. Law § 2119(c). Service fees relating to an assigned risk automobile insurance policy may be limited by § 21(C) of the Rules of New York Automobile Insurance Plan (2001).

3) An insurance agent or broker that accepts a premium payment by an insured may forward the premium to the insurer by credit card where such credit card is used solely for the purpose of paying insureds’ premiums, if the insurer has agreed to accept remittance by credit card. However, as to assigned risk automobile insurance policies, an insurance agent or broker may not remit the premium to the insurer by credit card.

4) If the insurance agent or broker deposits the premium payment into its premium account, when the deposit (if made by check or money order) has cleared, and the insurer has received the credit card payment, the insurance agent or broker may make a withdrawal from its premium account to pay the credit card company. However, the insurance agent or broker may not write a check on the premium account made payable directly to the credit card company because N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) does not permit such action. Thus, in order for the insurance agent or broker to pay the credit card company by check, the agent or broker will have to deposit the withdrawn funds into its own operating account, and write the check to the credit card company on that operating account.

5) Where the use of the credit card results in the insurance agent or broker qualifying for certain benefits provided by the credit card issuer, such as free air mileage, the insurance agent or broker may take advantage of such benefits because the benefits arise from a distinct and separate agreement between the credit card issuer and the insurance agent or broker as a card holder, and not from the insurance transaction.

Facts:

The principal of a company that is licensed as both an insurance agent and broker ("agency") accepts cash payments of premiums from insureds that have contracted with the insurer to make their premium payments on a "direct-bill" basis. "Direct-bill" means that the insureds have agreed, as a condition to policy issuance, to remit their premiums directly to the insurers, rather than through the agency. It is the practice of the agency to do the following acts after accepting those cash payments made prior to the date of cancellation: the agency provides the insured with a receipt; draws a check on the premium account and mails it to the insurer; sends a fax to the insurer, or otherwise communicates with the insurer, to advise it that payment has been received; and deposits the cash into the premium account. Thereafter, the agency takes steps to ensure that any policies that were slated for cancellation are not cancelled. The agency’s principal stated that these procedures cost the agency approximately $6 for each such transaction. Several questions were raised arising from the agency's practices, including whether the agency may use a credit card to forward payment of premium to an insurer, rather than forward the payment by a check drafted on the agency’s premium account. The principal stated that the credit card, which will name the agency as the cardholder, will be used only for the purpose of paying the insureds’ premiums to their insurers.

Analysis:

Insured’s Payment of Premium to Insurance Agent or Broker

N.Y. Ins. Law § 2101(a) (McKinney 2000) states in relevant part:

In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker. . . .

By definition, an insurance agent acts on behalf of the insurer it represents, and as such is vested with apparent authority to collect premium payment from an insured. Hence, payment to an insurance agent is deemed to be payment to the insurer.

N.Y. Ins. Law § 2121(a) (McKinney 2000) states:

Any insurer which delivers in this state to any insurance broker or any insured represented by such broker a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium which becomes due or payable thereafter on such contract, provided such payment is received by such broker within ninety days after the due date of such premium or installment thereof or after the date of delivery of a statement by the insurer of such additional premium.

This section provides that an insurance broker is authorized to accept payment of premium on behalf of the insurer. Thus, under § 2121, payment to an insurance broker is deemed to be payment to the insurer. See also Central Surety and Insurance Corp. v. Marro, 189 Misc. 823, 71 N.Y.S.2d 815 (Rensselaer Co. 1947). While Section 2121 does not require an insurance broker to accept an insured’s premium payment, an insurance broker should do so where it is in the best interests of the insured.

Under Section 14(E)(2)(b) of the Rules of New York Automobile Insurance Plan (2001), an insured must be advised that it has the option of remitting premium payment either to his producer or to the insurer directly. Thus, an insurance agent or broker must always take a premium payment proffered to it in an acceptable form by an insured of the Assigned Risk Plan.

Service Fee

N.Y. Ins. Law § 2119(c) (McKinney 2000) states, in relevant part, as follows:

(c) (1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.

(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed. . . . (emphasis added)

Thus, an insurance broker may charge a service fee for the additional services and expenses incurred for accepting the premium payment that was "direct billed" to an insured provided that the requirements of N.Y. Ins. Law § 2119(c) have been met.

However, there is no statute that allows an insurance agent to charge an insured a service fee for accepting the insured’s remittance of premium payment. The only fee an insurance agent may charge an insured is a consulting fee pursuant to N.Y. Ins. Law § 2119(a) (McKinney 2000) for consulting services, which are not the kind of services that you inquire about.

There is one exception to this general rule, and that is in regard to policies placed with the New York Automobile Insurance Plan. Under the Rules of New York Automobile Insurance Plan (2001), an insurance agent represents the insured, and, therefore, acts as an insurance broker. Thus, for this limited purpose only, an insurance agent may charge an insured a service fee as permitted under, and limited by, § 21(C) of the Plan. Since the agent would be acting as a broker in this situation, the agent would also be subject to N.Y. Ins. Law § 2119(c) (McKinney 2000). Under § 21(C) of the Plan, a producer, which may be an insurance agent or broker, may charge a maximum service fee of $40 per year per policy, which is applicable to all risks written under the Plan except commercial automobiles, private passenger fleets, and vehicles listed in § 6(A)(1)(e)(1) of the Plan.

Use of an Insurance Agent’s or Broker’s Credit Card to Forward Premium Payments

N.Y. Ins. Law § 2120 (McKinney 2000) imposes a fiduciary duty upon insurance agents and brokers with respect to funds received or collected as insurance agents and brokers, including but not limited to, policy premiums. N.Y. Ins. Law § 2120 does not require an insurance agent or broker to maintain a separate bank account for each of its principals provided that the funds held for each principal can be reasonably ascertained from the agent’s or broker’s books of accounts and records.

N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) was promulgated to facilitate compliance with N.Y. Ins. Law § 2120, and states in pertinent part as follows:

(b) Every insurance agent and every insurance broker is responsible as a fiduciary for funds received by such agent or broker in such capacity; all such funds shall be held in accordance with the following paragraphs:

(1) An agent or broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as "a premium account").

(4) No withdrawals from a premium account shall be made other than for payment of premiums to insurers, payment of return premiums to assureds, transfer to an operating account of (i) interest, if the principals have consented thereto in writing and (ii) commissions, or withdrawal of voluntary deposits, provided, however, that no withdrawal may be made if the balance remaining in the premium account thereafter is less than aggregate net premiums received but not remitted. (emphasis added)

Where an insured pays its premium to an insurance agent or broker, who deposits the payment into its premium account, the insurance agent or broker may forward the premium payment to the insurer by credit card where such credit card is used only for the purpose of paying insureds’ premiums, if the insurer has agreed to accept remittance by credit card. Once the credit card payment has been received by the insurer, withdrawal of funds from the premium account by the insurance agent or broker constitutes a "withdrawal of voluntary deposits" under Regulation 29, but such withdrawal should be clearly accounted for as being in connection with the premium payment. After the premium is transmitted to the insurer, the insurance agent or broker may withdraw the deposited funds from the premium account to pay the ensuing credit card bill, the charge for which is attributable solely to the premium payment forwarded to the insurer. However, the insurance agent or broker may not write a check on the premium account made payable directly to the credit card company because N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) does not permit such action. Thus, in order for the insurance agent or broker to pay the credit card company by check, the agent or broker will have to deposit the withdrawn funds into its own operating account, and write the check to the credit card company on that operating account.

Pursuant to Section 14(E)(1) of the Rules of New York Automobile Insurance Plan (2001), assigned risk automobile insurance premiums must be paid either in cash or by check or money order made payable, or endorsed, to the designated insurer. Therefore, an insurance agent or broker may not remit such premiums by credit card. Additionally, Section 14(E)(1)(d) requires that "[t]he deposit and premium payments for all for-hire classes of risk shall be made by a certified check, bank check, producer check, finance company check, or money order."

Credit Card Benefits

Where the use of the credit card results in the insurance agent or broker qualifying for certain benefits provided by the credit card issuer, such as free air mileage, the insurance agent or broker may take advantage of such benefits because the benefits arise from a distinct and separate agreement between the credit card issuer and the insurance agent or broker as a card holder, and not from the insurance transaction. These benefits do not constitute a fee or additional insurance commission or compensation to an insurance agent or broker from an insured that is otherwise generally prohibited by N.Y. Ins. Law § 2119 (McKinney 2000).

This opinion supersedes any earlier Department opinions that are contrary to, or conflict with, this opinion.

For further information you may contact Senior Attorney Sally Geisel at the New York City Office.